Transcript BA 447 – day 9 & 10.ppt

THE “OTHER SIDE” OF
GLOBABLIZATION
BA 447
Day 9 & 10
Feed back: what would you do …
• If you faced a Tienamen-like situation
• First of all, you might have considered the risks
before hand, i.e. no surprise?
• Second, safety of personnel, ex-pats in
particular because they are not “natives”
• Third, what to do with investment?
– Security of the facility or investment
– Find out what is happening, scenarios, etc. e.g. call
your friendly government official, contacts, etc.
– Report to head office and obtain guidance
Recap
• Understand issues in global arena
• Use Flat World as a jumping off point to
identify what these issues might be
• Flat World is familiar:
– web-enabled playing field
– new players
– business applications, e.g. supply chains
Flat World
• It has assumptions about entry of new
players and implications
– open economies
– how these opened up
– who benefits from this new environment
– those who are not part of the "party“
• It has assumptions about, or can lead us
to conclude behavior of businesses
Flat World: for further investigation
• Governance and corruption deals with how
these “open” economies are managed
• Understanding sources of instability in a country
or "threats" to businesses
• Resource issues that may create constraints energy, environment
• Role and function of agencies such as WTO
• Issues you identify, find interesting, e.g. specific
issues like e-waste and take back laws, WTO
related conflicts, activists
Value to global business
• What must I know to function effectively in
a specific country? Global arena?
• What can impact a global business?
Country specific? Regional?
• Response when one is in a situation that
requires understanding of the country?
• Coverage of issues may help provide
background basis for understanding
prospects or lack of it in a target country
Overview: Governance, corruption,
terrorism
• Review ch 15
– Discussion
• Review ch 16
– Discussion
• Questions raised
Chapter 15
• What are major conclusions?
• What are key assumptions?
• Your opinion?
Chapter 15 –
Other side of “flat world”
• Technological optimist or historical
determinist: the brave new world and its
dark side/history repeats itself
• The reality of poverty and efforts reduce it
– Too sick – disease and underdevelopment
– Too disempowered - marginalized
– Too frustrated – ideological, religious
– Too many Toyotas – what if we did succeed in
making people well-off?
Poverty statistics
• Poverty rates in selected countries
– Global poverty WORLD BANK
– World Poverty IFPRI
• Poor are most vulnerable to natural
disasters: tsunamis; typhoons; hurricanes;
earth quakes
• Poor most vulnerable to disease outbreaks
– Sanitation
– Access to health centers
Poverty
• Poverty alleviation: decades-long goal
– http://web.worldbank.org/WBSITE/EXTERNA
L/TOPICS/EXTPOVERTY/0,,contentMDK:201
53855~menuPK:373757~pagePK:148956~pi
PK:216618~theSitePK:336992,00.html
– http://www.makepovertyhistory.org/
– http://www.globalissues.org/TradeRelated/De
bt/USAid.asp
Poverty and prosperity
• Mansions, high rises, and slums
• Benefits to elite (Philippine rates)
– Caddies: $10 a game
– Household helps: $55 a month
– Driver (stay-in): $130 a month
– Secretaries starting pay: $300 a month
– Call center pay: $300 a month
• Living wage and minimum wage
Too disempowered
• The rural vote: in developing countries, to
the extent that elections are honest,
elections are dictated by the masses.
• Economic growth often does not trickle
down.
• What are the arguments?
– Global populists argue that the poor do not
stand a chance
Anti-globalization
• Western-driven movement composed of:
– Upper-middle class with guilt complex
– Rear-guard push by the old left
– An amorphous group: neoludites?
– Anti-americanism (power is a magnet for
criticism)
– Serious groups focused on “how we globalize”
Response to anti-globalization
• Reform retail - • Local government focus; we can not
ignore national government.
• Village by village effort
• Role of multinationals
– HP’s efforts to help villagers articulate what
they needed
– Microsoft program providing computers
– “Community relations” projects
Another view of poverty
reduction
• Targetted approaches, for example
– http://www.usaid.gov/
– http://abcnews.go.com/International/wireStory?id=120
5776
• The World Bank shifted to reducing corruption.
– Corruption = lack of or poor governance
– Poor governance perpetuates poverty
Islam
• Shares common “tradition” with Judaism
and Christianity. Qur’an as correcting
Jewish and Christian scriptures
– One God
– Abrahamic roots
• http://en.wikipedia.org/wiki/Islam
Islam – Sunnis and Shiites
• Schism after death of Muhammad
– Sunni sect emerged after murder of
descendants of Muhammad in Karbala
– Shiite sect emerged as loyal followers of Ali
(Muhammad’s son-in-law) reunited
• Differences
– Iman
– Atonement
Sunni and Shiite States
• Alliances in the Middle East are colored by
divisions in Islam, e.g. Iran and Saudi Arabia
• Shia – about 10-15% of Muslims
– Majority of Muslims in Iran (90%), Iraq (60%+/-),
Azerbajian, etc.
– Current Iraq administration is Shiite dominated
• Sunnis remain the majority
– in such states as Saudi Arabia, Syria, India, Pakistan,
Afghanistan, etc.
– Sadam Hussein was a Sunni
Islam and terrorism
• Frustration due to authoritarian regimes
and lack of economic opportunities
• Islamist fringe and its supporters
– Terrorist acts as directed against “trust”
– The “West,” particularly the US, as a
convenient target for dissatisfied Muslims
– Establish an Islamist state
– Feed on frustration due to humiliation - if
Islam is that great, why are we poor
“Muslim Problem”
• Centuries old issue of dealing with Muslim
population in the Philippines - through Spanish,
US, Japanese occupation
• 10% of the population, mainly in South
• Secessionist? Anti-Christian?
• Factions within the population
– MILF, MNLF, Abu Sayaf as splinter group
– Families and clans also fought each other
• Terrorist acts - kidnappings, bombings
– Attract attention to their cause
– Collect “taxes”
Chapter 15: Other side of “flat
world” summary
• Poverty
– Too sick – disease, dislocation due to disasters, and
poverty go hand in hand
• Poverty and corruption are related
• Too disempowered – the marginalized also have power if
they vote
– Too frustrated
• Relationship between Islam, Christianity, and Judaism
• Relationship within Islam
• Other causes of conflict
– Too many Toyotas – what if we did succeed in making
people well-off?
Bin-Laden’s Cause
• Well before Sept 11
– http://news.bbc.co.uk/1/hi/world/south_asia/15
5236.stm
• Western infidels on sacred ground - foreign troops
in Saudi Arabia during Kuwait war
• Corrupt Saudi Arabian government
• US support for Saudi Arabian government
• Depletion of natural resources - oil
• Why conduct attacks on US soil?
• Al-quaeda as a loose confederation
Terrorism in general
• Objectives:
– Attract attention/support for a cause
– Destabilization of status quo
• Methods
– A small bomb, big bang in the press
– Guerilla-style efforts, including suicide bombers, can
tie up a whole army. Therefore, cost – benefit is in
their favor
– Harassment=leverage for whatever ends they may be
working for, e.g. extortion, support, etc.
Religion and Government
• Separation of church and state
– People are free to worship
– Government can not dictate/interfere
• Some democracies have informal
relationships between church and state
• Other governments have closer ties
Decision making in IRAN
• For Ch 12 - decision making in a
government\Iran-Decision Making
Structure.xls
Summary
• Too frustrated - terrorism
– Review Friedman’s opinion on why Muslims
are easily recruited
– My view of terrorism
• Too many Toyotas (Thursday starts here)
• The Dell Theory of Conflict Prevention
• Governance/Corruption
Growth and natural resources
• What if China’s middle class actually grew? Or
India’s? What type of lifestyle would they
emulate?
• Rise in crude oil prices in 2004 partly attributed
to unexpected growth in Chinese demand for oil.
• The growth of Chinese requirements for oil (and
commodities) may subside a bit in next few
years.
• Are there limits to China’s growth?
Resources
• Broad topic, which includes among others
– Energy
• Renewable
• Non- renewable
– Commodities, e.g. steel, agricultural products
– Environmental issues
• Pollution as we know it
• “Technological” pollution, e.g. unsafe technology
• We will cover these later
Quick exercise
• List all conflicts between countries that you
are aware of and state . .
– Which have resulted in actual invasion?
– What is root of conflict?
Ch 16: The Dell Theory of Conflict
Prevention
• Supply chain management means that
production in different countries are linked
• For a particular country, this means foreign
direct investments, jobs, etc.
• War or any violent conflict that disrupts
economic activity can disrupt supply chain
• Such a conflict can also cause
investments to move to more peaceful
locations
Back to terrorism
• Destabilization or terrorist acts may be
targeted at “discouraging” investments
• If the economics are right, a company may
opt to deal with “terrorists” by paying
“taxes”
• In some areas, terrorists often does
enough damage to increase uncertainty
and extract rent. This is good “business.”
Historical Conflicts
• China (People’s Republic of China) and
Taiwan (Republic of China)
• India and Pakistan
• Japan and China, and Korea
• UK and Ireland
• Eastern European “hotspots”
• South America??
Roots of Conflict
• Religion as in the case of India and
Pakistan
– Was one country and broke up after
independence
• Ideology – China and Taiwan
• Economic (capture resources) – Japan in
World War II
• Political with religious undertones (Ireland)
Why governance and corruption?
• Ch 15 deals with the poor, the sick, the disenfranchised.
– These people are a significant majority in developing economies.
– The contrast between rich and poor is significant and troubling.
• Ch 16 suggests that foreign direct investments can limit
conflict.
– FDI depends on economic and political stability.
• Governments or states have a role in how economies
are managed, determines political climate.
• Governance deals with how states acquire and exercise
its authority.
• Corruption is the absence of good governance
Relevance
• Political risk is heightened by
– Disenchantment with government
• Too many frustrated and disempowered
• Too sick = poverty
– “Terrorist” activities can arise from
• Disenchantment
• Religious, tribal/ethnic, and clan rivalries
– Individual ambition
– Conflict with neighboring countries
– Weak and/or corrupt central government
Relevance (continued)
• Political risk can lead to
– Violence e.g. civil unrest, coup d’etat, rebellion
– “Non-regular” change in control of central government
– Change in “rules of the game”
• The price is usually control of central
government
–
–
–
–
Concentration of power
Impose goals, e.g. ideological, religious, etc.
Rent seeking
“For good of the country”
Relevance (continued)
• Recall discussion on Tienamen square situation
• Conflict or threats build up, but how to gauge?
• If a country is considered particularly risky, there
will be contingency plans in place.
• Things to look out for?
–
–
–
–
Security of personnel
Security of the facility or investment
Report to head office and obtain guidance
Manage head office – find out
• Before hand, build your network, e.g. government officials,
local business entities, etc.
Relevance (continued)
• Impact on foreign companies: during crisis
– Physical harm to managers and employees
– Loss of control of physical and technological assets;
management flexibility
• Possible impact if crisis results in “non-regular”
or unplanned change in government
– Increased cost of doing business
– Loss of investments
• Opportunities – if worse does not occur
– If one stays and everyone leaves
– If one takes a chance, competitors do not
Corruption . . .
• Reduces the amount of resources intended for
specific sectors of society.
– Estimate of losses due to corruption in Iraq $5b
• Reduces the amount of resources collected for
government to do its work.
– Estimate of portion of national revenues not collected
due to corruption in tax collection: 20% of national
budget
• Distorts markets: eliminates a level playing field.
• Weakens credibility and legitimacy of
government, in some cases faith in the ballot
A Different Typology of Corruption
• I will use my classification scheme
• Petty – bribery to facilitate a process or avoid
minor penalties, e.g. traffic violations
– Extortion through use of authority to extract bribe
• Major – briberies and use of influence to win
major contracts or control of assets
– Manage a port or power plant
• State capture – in addition to major contracts,
write laws that favor specific interests
Examples of administrative
corruption
• Related to the enforcement of laws
– Bribes to avoid traffic citation, facilitate paper
work required, extortion to avoid trumped up
charges, etc..
– Citizens may actually pay the same or less to
obtain the service or avoid penalties. Either
way, government suffers financially and in
terms of credibility.
• Other examples?
Examples of state capture
• In case of Saudi Arabia, based on reading, is
there state capture? Why?
• Bribing legislators, by whatever means, to enact
laws favorable to one’s industry or company.
– Difference between lobbying and cash in an envelope
• Or bribing printer of laws and implementing
regulation.
• Other examples – readings?
Additional examples?
• Award and management of contracts
– Transparency in bidding and award process
– Hurdles during evaluation of performance under the
contract, collection, change orders,etc.
• Article on Saudi Arabia
• Venezuela – evidence that President is using
nationalized companies to “take care” of his
loyal supporters
• Nigeria – misuse of oil revenues, flawed
elections to retain power
• Others?
Where corruption thrives
• Monopoly
– one can only go to one office for a transaction
• Human discretion
– Rules are subject to interpretation or lack of transparency
• Low risk of capture, e.g. no history of anyone being jailed
• Penalties for capture much less than sums of money to
be gained
• Large sums of money . . . and small salaries
• Stated another way, corruption will thrive when:
–
–
–
–
Rules are unclear and subject to interpretation
Weak rule of law
Low paid civil servants
Social acceptance that corruption is inevitable
Approaches to stopping corruption
• Anti-corruption campaigns
– Leadership appoints an anti-corruption czar
– Publicity to announce end to corruption
– A few heads roll
• Czar must be independent, hit the big fish, sustained,
e.g. Hongkong program bagged the police chief
• “Al Capone” strategy
• Systems and procedures must be changed to eliminate
some of the conditions that allow corruption
– Regulatory change sometimes necessary
– Internal changes to systems and procedures
Internal conflicts that spill over
borders
• Tribal/ethnic conflict
• Religion
– “Frustration”
– Control of the country
Some conclusions
• Friedman is right part of the time
– Business interests will lobby for restraint
– Economic fall out can be significant
– In addition, business interests can be the link
across countries, e.g. “overseas chinese”
• In some cases, economic interests are
outweighed by political or religious causes
QUIZ 2
• Will be on material and readings covered in
– Day 5 & 6
– Day 9 & 10
• Will be posted on website by Friday evening
• Due beginning of class
– Typed
– Follow word limits stated on Quiz
– Submit hard copy
• Feb 11 (sec 001)
• Feb 12 (sec 003)
Discussion within Groups
• What are the issues raised that are
– Interesting personally?
– Have relevance to an international company?
• Why?
• What do we need to learn more about?